On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2011, the option has a fair value of $1,600. The following spot exchange rates apply:

What is the amount of Cost of Goods Sold for 2012 as a result of these transactions?

A) $200,000.
B) $195,000.
C) $201,000.
D) $202,600.
E) $203,000.

Question

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2011, the option has a fair value of $1,600. The following spot exchange rates apply:

What is the amount of Cost of Goods Sold for 2012 as a result of these transactions?

A) $200,000. 
B) $195,000. 
C) $201,000. 
D) $202,600. 
E) $203,000.

Quizplus · Accepted Answer

The Answer of On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2011, the option has a fair value of $1,600. The following spot exchange rates apply:

What is the amount of Cost of Goods Sold for 2012 as a result of these transactions?

A) $200,000. 
B) $195,000. 
C) $201,000. 
D) $202,600. 
E) $203,000.

On October 1, 2011, Eagle Company Forecasts the Purchase of Inventory